What’s cooking in Asian currency basket?

KRW: Underlying growth momentum is likely to remain weak during H1 2016, FIIs and DIIs outflows could extend as a result of challenging growth prospects and lower yields on Korean assets. KRW ruining especially vulnerable to weaker Chinese growth and CNY depreciation.

INR: Disinflation, the positive real rates-led rise in household financial savings, and ongoing fiscal consolidation are all very supportive of a secular bull market in bonds. Monetary policy should stay accommodative, given INR REER strength and ample FX reserves.

MYR: FX-rates correlations could fall as the idiosyncratic factors weighing on MYR recede. As a result, term premia are elevated as the market focus shifts to slowing economic growth. Moreover, we expect a stronger allocation to bonds by the pension fund.

CNY: Slower growth, capital outflows, a CNY that is 5- 10% expensive, and rising global uncertainty will likely steer China away from pegging to the rising dollar. We see this happening in reaction to a stronger USD environment, as well as the need to stabilize outflows.